RUSSIAN BANKS START TO BORROW IN YUANS

4 september 2015 года
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Lenta.Ru
Moscow,
September 4, 2015 14:30
Author: Interviewed by AlexandrVolobuev


Photo: Maxim Blinov/ RIA Novosti

Vnesheconombank Chairman VladimirDmitrievtalks about China, mutual payments and Transaero

The first Russian East Economic Forum underway in Vladivostok is designed to expand cooperation with countries of the Asia-Pacific region including the world’s second economy – China. On the sidelines of the Vladivostok Forum Vnesheconombank Chairman Vladimir Dmitriev told Lenta.ru about the results of the recent visit to PRC, prospects for transferring to payments in national currencies and commented on the situation with Transaero.

Lenta.ru: How do you size up the results of your visit to China?

Dmitriev: Vnesheconombank is satisfied with the results of its delegation stay in China during the celebration of the 70th anniversary of victory in the Second World War and with the outcome of President Putin’s formal visit to PRC and his talks with PRC President Xi-Jinping.

In our opinion our main result in the signing of the memorandum on the development of the Bystrinsky ore deposit. The project is to be implementedby Nornikel. This project is attractive for the Chinese side because it is funded in Yuansand because it’s a project of finished products. Copper concentrateand noble metals will be supplied to China in full for processing. Irrespectively of this project, the central banks should expand practice of funding in national currencies spreading it to funding for such mid- and long-term projects. Now this practice applies to trade transactions. Together with the Russian Export Centerwe signed an agreement with the head ofGuangdong province (one of the largest provinces in the South of China). The project provides for constructing a large logistics hub for Russian products among other things with high added valueto further supply them to China and Southeast Asian countries. This is a pilot project. We haven’t had such a thing on the Chinese territory before - a facility intended for exporting only Russian products.

What are the chances of the project being successful?

The project has a great future because the administration of Guangdong province is quite experienced in creating technoparks and special economic zones and it intends to give it special status to provide it with significant administrative and tax privileges like those existing in special economic zones.

So far, we have tried to receive funding against supplies of Chinese equipment and products to Russia but now we can see that one of the largest provinces is interested in supplying sawn timber, processed timber products with high added value, farm products and other types of goods from Russia through this logistics center.

We also have other capabilities for raising Chinese financial resources. We’ll give high priority to expanding the format of investment cooperation both on our own and through our subsidiary – the Direct Investment Fund and the Russian-Chinese Investment Fund.

We are also working with private investment funds in PRC in order to raise their funds for our projects, above all, on the territory of the Far East – they include projects on mineral production, mineral production, farm production, industrial business as well as investment project, aquaculture, infrastructure and electric power industry.

Why is VEB so active in negotiations with its Chinese partners?

We believe that our Bank along with other banks affected by sanctions, made great progress in their cooperation with their Chinese partners, they raise credit facilities in yuans. Tied financing makes it possible to raise funds in hard currency.

Our Chinese partners are aware that the amount of mutual trade is falling due to reduced energy prices and we have to compensate for it through diversifying our foreign trade relations among other things by way of increasing the volume of Russian products not related to energy resources.

Payments in national currencies

Does the ruble high volatility in your opinion pose a risk to large-scale projects?

Of course it does, especially if payments are made in national currencies. But a mechanism for such payments provides for central banks to take most of the risks. Although either banks that assume intermediary functions, haveto hedge risks or companies themselves. So, it’s evident that the ruble volatility pose additional risks in trade relations.

What do you need to do to enter the borrowings market of continental China?

We have been discussing this issue with the Chinese authoritiesand regulatory authorities for about two-three years and we can see that our partners from the Chinese banking community are ready to help us by lobbying VEB’s interests. Talking with my colleagues from other Russian banks including those with state participation I can see that that they are following the same path. I don’t think that this will happen tomorrow, till the year end or at the beginning of the next year. Somehow we are in advanced dialogue with China’s regulatory authorities. We can see that serious headway was made in China itself, but volatility on the Chinese stock market would to a certain extent change our plans. Nevertheless, we are on the right wayand the Chinese regulatory authorities are doing their bestto help us.

Position on Transaero

At what stage is the discussion on a Transaero general agreement?

Vnesheconombank is not a major creditor of Transaero Airline compared to other banks with state participation. We’re worried by the situation because our subsidiary – the largest Russian leasing company VEB-Leasing extended financial leasing to the air carrier for an amount of 55 billion rubles (Transaero’s total debt is about 250 billion rubles).

And there is no doubt that measures for state support for this air carrier, repurchase of majority stake by Aeroflot and subsequent talks should take into account not only interests of our leasing company but also interests of other lasing companies that extended financial leasing to Transaero.

It’s clear that this concerns us too both interms of consolidated balances of international financial statements and due to the fact that VEB-Leasing used VEB’s credit facilities to purchase aircraft.That is, we are indirect participants inmultilateral talks but the situation with Transaero concerns above all VEB-Leasing directly.

We informed the Government about serious risks posed to Vnesheconombank’s interests.

Why are these risks occurring if Transaero’s financial liabilities are to be transferred to Aeroflot after a transaction (the air carrier acquires a 75-percent stake in Transaero)?

Now it’s a matter of formulating a consolidated position on settling debts to creditors among things by leasing companies. And here I mean not only restructuring of the debt but also a possible writing off a part of the debt.

Are you ready to agree on writing off a part of the debt if other creditors take such position?

The state provides support for Vnesheconombank but it also takes into account consolidated financial statements. We’re a sole and principal shareholder of our subsidiary institutions and we must maintain their financial stability. But as the state is our owner, it must ensure VEB’s financial stability through addressing problems of our subsidiaries that came into being through no fault of ours.

This implies the state’s additional support?

Writing off a part of the debt will mean a direct loss for VEB-Leasing and therefore for Vnesheconombankthus violating the covenant (credit terms) and this mightexacerbate VEB’s other problems. So, the state must be aware that this problem as well as the air carrier’s problem should be in the focus of its attention.

Vladimir Dmitriev

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How the Yuan works for Russia

1 september 2015 года
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Rossiyskaya gazeta,
Moscow, September 1, 2015
Author: Anna Romanova

Russia’s Bank for Development and China’s financing institutions cooperate

In the context of the Russian President’s forthcoming visit to the PRC expected to take place in September off 2015, Head of Staff of the Presidential Executive Office noted: “I can say without exaggeration that at present the Russian-Chinese relations are at the highest level than ever before”.

The same can be said not only about political but also about financial sector. The Russian Bank for Development – Vnesheconombank (VEB) have been working together with Chinese financing institutions for a long time and in the past several years their cooperation has expanded.

Committed to development

VEB’s main partners are the China Development Bank (CDB) and the Export-Import Bank of China (the Eximbank of China). The extent of their cooperation is seen in their stated projects. From 2005 to 2014, VEB raised 10.74 billion dollars and out of them 10.11 billion dollars were provided by the CDB. Due to such significant amounts, VEB remains to be one of the CDB’s largest borrowers among Russian financing institutions. The two banks’ cooperation is based above all on an extensive and solid legal framework. For the past ten years they entered into five agreements and memorandums on cooperation, two framework agreements as well as ten credit agreements. These are the examples of projects where Russian and Chinese financial resources were used.

In 2009, VEB and CDB entered into a funding credit agreement the funds from which were used to fund the construction of a cement plant in the city of Slantsy of the Leningrad region. Cement in this city is manufactured in a special way: they use “dry” method of manufacturing this raw material on the basis of natural raw materials and technogenic raw materials received from production wastes of slate processing industry on the territory of Slantsy district municipality. Such a method is not also economical but also eco-friendly. VEB provided funds that cover more than a half of the project’s value – 237.1million euros from the total value of 442.2 million euros. Two years after the construction started (in 2011); the plant began to manufacture trial batches of products. Now the plant’s capacity is 1.86 million tons of cement per year.

In October of 2013, in the course of the 18th regular meeting of Russia’s and China’s Heads of State and in the presence of the Russian Prime Minister Dmitry Medvedev and Premier of the PRG State Council Li Keqiang, VEB and the CDB signed a credit agreement worth 400 million dollars to fund the third unit of the Ekidastuz-2 power station in the Pavlodar region of the Republic of Kazakhstan.

This project launched in 2009 is to meet Kazakhstan’s growing needs for electric power, electric capacity and close the energy gap in the Russian regions of the South Urals, West Siberia and Altai. Now 400 specialists are working there but by a launch of the unit scheduled for 2017, 1200 specialists will work there.

In May of 2014, in the course of Russian President Vladimir Putin’s official visit to China, CDB, VEB, Gazprombank and OJSC Yamal LNG signed a Memorandum on Arranging Financing of the Yamal LNG project. The Yamal LNG project provides for the construction of a liquefied natural gas plant (LNG) with a capacity of 16.5 million tons of LNG per year on the resource base of South-Tambeisk gas field. Credit facilities are to be raised from Chinese banks to fund it. VEB is to extend a banking guarantee in the amount of 3 billion dollars.

Taking into account the fact that China is our close neighbor some construction projects are being implemented in the Far East region. For example, a timber processing complex to manufacture chipboards and sawn materials was built in the Vanino district of the Khabarovsk Territory, with Vnesheconombank’s participation share being 277 million euros. The project’s total value is 415 million euros.

Joint social programs are among VEB’s and the CDB’s projects. In autumn of 2014, VEB and the CDB agreed to jointly fund the following programs “Housing for the Russian Family” and “the Rental Housing”. On the Russian side. a Memorandum of Understanding was signed by VEB and the Housing Mortgage Lending Agency. But the new Housing Development Agency will be responsible implementing it. The Russian and the Chinese sides intend to develop an optimal mechanism for funding the programs including bilateral syndicated interbankbank loans and they also explore the possibility of issuing bonds in Russia and in mainland China. The Housing Development Agency’s need for funding amounts up to 135 billion rubles for a period of 25 years. Chinese companies also intend to participate in housing construction.

From the dollar to the yuan

Until the year 2015, the dollar and the euro played a role of main currencies in bilateral and multilateral projects. In May, an agreement was signed that would be much appreciated in the near future. On May 8, 2015, VEB and CDB signed in the presence of Russia’s and China’s Heads of State a framework credit agreement worth up to 8 billion in the dollar equivalent. This framework agreement provides funding joint projects in various currencies including in Chinese yuans. It’s already known that the money will be used to fund the abovementioned programs “Housing for the Russian Family” and “the Rental Housing” as well as infrastructure projects, agro-industrial complex projects and projects of utilization and development of communications technologies.

As opposed to a framework agreement signed by VEB and CDB, VEB took its first practical step together with the Eximbank of China by signing an agreement on a credit line for an amount of 3.9 billion yuans (an equivalent of 630 million dollars) for a period of 15 years. It was the first time when VEB raised credit facilities in the Chinese national currency to implement an investment project in Russia. It’s a really breakthrough agreement even for such a large-scale financing institution as VEB.

It should be noted that so far it’s not possible to hedge risks with regard to the ruble-yuan currency pair on a long-term basis and this hinders a process of transferring to payments in our national currencies.

One of the first steps in addressing this problem was an agreement the Russian Central Bank and the China People’s Bank signed in 2014 on a swap (a conversion transaction) in national currencies for an amount of 150 billion yuans.

This is only a part of already stated and implemented VEB’s projects with Chinese partners. As part of the already concluded agreements there will be new projects and this means that new production facilities manufacturing new products and creating new jobs will emerge.

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